Product Pricing - Starbucks

Essay by EssaySwap ContributorUniversity, Master's February 2008

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Starbucks Coffee Company opened its first store in Seattle in 1971. After several years of selling coffee beans to restaurants and espresso bars, Howard Schultz convinced the founders of Starbucks to test the coffee bar concept in Seattle. This 1985 successful experiment was the genesis for Starbucks as we know the company today. Starbucks went public in 1992, and is traded on the NASDAQ under the trading symbol ?SBUX.? Starbucks Coffee Company now has over 9,000 stores internationally, sells bottled coffee beverages, coffee beans and teas in supermarkets, and has licensing agreements with book and department stores.

The core business of Starbucks is that of serving espresso beverages in neighborhood coffee shops. The strategy of being a ?third place? appears to have worked very well. The coffee shops provide an environment for doing homework, holding business meetings, or socializing after work (Pristin, 2002). The age group of the typical Starbucks customer has expanded over the years.

In addition to the older customer with more disposable income being the primary customer a few years ago, now 13% of Starbucks customers are 18 to 24 years, more diverse, and have slightly lower than average income (Business Wire, 2004).

The utility of the products and services that Starbucks offers is subjective, and is therefore difficult to quantify. For some people, the thought of paying $3 for a cup of coffee serves no utility even though the $3 is a very small relative amount of their disposable income. For others, one cup of coffee a week from Starbucks provides total utility, while yet others buy three cups of coffee a day before the amount of marginal utility is completely diminished. This is a luxury product that is not "needed" by the consumer; an espresso drink is completely a want to be satisfied.